Tucked away at the end of a narrow driveway, the factory is easy to miss, an anonymous blue metal box ringed by a towering green fence.

Inside, however, a handful of workers are producing the controversial new lifeblood of Kahnawake Mohawk territory and, arguably, posing a dire threat to Canadian public health.

At one end, a single worker feeds pungent, raw tobacco into a noisy machine that prepares it for final assembly. Another labyrinthine apparatus takes the processed leaf and churns out thousands of cigarettes: what outside authorities call contraband, what locals consider a product of their inherent right to sovereignty.

And just behind the plant is a sign of the growing self-sufficiency of the native cigarette industry: the first field of tobacco actually grown at Kahnawake, just south of Montreal. How much will it produce? “I don’t know, but if I did, I probably wouldn’t tell you,” grins a plant employee, before calling his boss to see if he should say anything at all.

Almost 700 kilometres away at Six Nations territory in southern Ontario, another fenced compound — just down the road from the site of a new tribal police headquarters — harbours more unmarked tobacco factory buildings. A security guard heads off an uninvited visitor and moments later another plant employee roars up in a pickup truck, politely making it clear the interloper is not welcome.

Such secretive plants are dotted throughout these and two other Mohawk communities in Ontario and Quebec, as many as 50 all told, according to estimates from police and tobacco-business insiders.

Their tax-free, dirt-cheap product is decried by antismoking advocates, non-native politicians and the mainstream tobacco industry.

The native product accounts for an estimated 30% of cigarettes smoked in Canada, and has dragged to a halt the steady, decades-long decline in smoking rates, critics say. They also represent $2-billion a year in lost federal and provincial revenue.

But on reserves grown accustomed to poverty, the factories are the heart of a solidly entrenched economic powerhouse, broadly supported and responsible for new mansions, nice cars and general financial wellbeing. In a striking reflection of the complex relationship between non-native governments and First Nations, they are often allowed to operate with virtual impunity.

“I look at the tobacco industry as the basis for a diversified economy for the Six Nations,” said Bill Montour, elected chief of that community. “We want to be part of this whole idea called Canada, but we’re not going to be coerced into saying ‘Well, you’ve got to do it this way.’ ”

Edna Holyome, who owns a smoke shop at Six Nations that sells those locally made cigarettes, puts it more simply. “Tobacco,” she said, “is our natural resource.”

A National Post investigation into the underground tobacco business has also determined that:

-Some Ontario tobacco farmers are selling illegally to the aboriginal manufacturers, earning millions of black-market dollars by some accounts;

-Non-native corporations continue to sell filters, cigarette paper and other ingredients to the native plants without restriction;

-The tobacco industry employs thousands of First Nations people and has created a new class of cigarette millionaire on chronically downtrodden reserves; and

-The federal government received repeated alerts about the burgeoning, blackmarket manufacturing sector as long as seven years ago, when the business was still in its infancy. Even earlier, Mohawk leaders warned of the contraband tobacco wave before it actually started.

Priced currently at as little as $10 per bag of 200 cigarettes –compared to $88 for a carton of legitimate brands in Ontario, for instance — the aboriginal products are sold to individuals at a myriad “smoke shops” on reserves, or in bulk to distributors who peddle them on the streets of non-native communities across the country.

It is reminiscent of the cigarette smuggling epidemic in the early 1990s, except back then the trade was facilitated by major, legal tobacco companies that sent product into the U.S., just so it could be smuggled back, tax free, to Canada, mostly through Akwesasne reserve near Cornwall.

Much of the police and media focus this time has been on the millions of cigarettes produced in 10 factories on the U.S. side of Akwesasne, then secreted through the Canadian side of the border-straddling community and beyond.

A growing number of plants, however, are firmly ensconced on some Canadian reserves, where risky, international smuggling is not necessary to get the finished goods to market. That includes the Canadian side of Akwesasne and Tyendinaga, near Belleville, the RCMP say.

“We always looked towards Akwesasne as the heart of the contraband problem,” Jerry Montour, CEO of Grand River Enterprises, a fully licensed and tax-paying native tobacco company, told a little-noticed parliamentary committee hearing in 2008. “[But] maybe we’re all sitting around watching one house, and five houses down the road, everything’s just partying on.”

Mr. Montour’s company, based at Six Nations, is actually suing the federal government, demanding back more than $500 million in taxes it has paid since 1997, arguing in part that Ottawa has failed to take any action to shut down his non-licensed competitors.

The suit alleges that GRE repeatedly warned federal officials about the emerging manufacturing network with a series of letters starting in 2003. A 2005 missive to the prime minister complained there were still “no repercussions” for contraband manufacturers.

In fact, only one factory has ever been shut down, after police alleged it was linked to a Hell’s Angels operation that was also selling crack cocaine.

As long ago as 1998, the grand chief of Akwesasne warned in a letter to Jean Chretien, then prime minister, that recently increased tobacco taxes would lead to a new spate of cigarette smuggling, likely augmented by the running of drugs, guns and other contraband. Mike Mitchell said his people did not want to see tobacco take hold, but lamented in the letter that the band had received no federal help in its push to foster other, healthier businesses and trade.

Mohawk business leaders note that legitimate private enterprise in their communities faces major obstacles, including the fact that most banks will not issue business loans or mortgages linked to property on reserves.

The aboriginal tobacco industry, though, appears to have become a force onto itself, with entrepreneurs arguing they have done far more for economic development than federal or band governments, and challenging the legitimacy of native administrations they call a creature of colonialist laws.

Past confrontations like the 1990 Oka crisis near Kahnawake and the Six Nations land-claims dispute near Caledonia make the idea of ending the business by force less than palatable for any outside government.

“There is no real push, there is no real force that is trying to stop this industry because, honestly, if they do come in, there’s going to be another crisis,” said Steve Bonspiel, editor of Kahnawake’s Eastern Door newspaper. “It will be defended … Any attack on the industry is an attack on the community, is an attack on our rights.”

The economic benefits are readily apparent, though have also created tensions.

All the factory owners at Six Nations are millionaires, said Ms. Holyome, part of a new commercial association. And everyone who makes money from the business has to buy a new car, she laughs, from Cadillac Escalades to Hummers and even Porsches.

“Today, we’re known [to neighbouring Quebecers] as the Hummer people,” Tim Jay Montour, a tobacco wholesaler at Kahnawake, said with a grin. “People have pride when they have money. It’s changed us from a one-horse town to a boom town.”

Sprawling new homes on sweeping, beautifully landscaped lots are sprinkled through the community, while much of the territory has the feel of a pleasant, middle-class enclave.

One house under construction is known to locals simply as “the castle;” four stories tall, topped by an ersatz parapet and protected by security cameras, the cigarette baron’s mansion competes with nearby St. Francis Xavier Church in size.

Estimates of employment vary. From 800 to 2,000 of Kahnawake’s 8,000 residents alone are employed in tobacco, residents say. An economic impact study commissioned by GRE estimated 10,000 First Nations people overall have jobs in the business, Mr. Montour said in an interview.

Burton Rice, who ran one of Kahnawake’s biggest plants, said his operation employed 200 people. Many owners have invested five or six million dollars in manufacturing equipment, he said.

Wages for Kahnawake factory workers range from $600 to $700 a week, income-tax free, and some plants pay bonuses totalling as much as $10,000 a year, while the economic spinoffs have helped build other businesses on the reserve, too, said Tim Jay Montour.

“If it wasn’t for the cigarette industry, we’d be done as a people,” he said.

The stretch of highway that runs from the Mercier bridge into Montreal through Kahnawake is still peppered with smoke shops, but also boasts new strip malls and other developments that didn’t exist a year or so ago, noted Mr. Bonspiel.

Ms. Hill said her husband’s factory at Six Nations employs about 20 people — or “20 families” as she puts it — a level of success the couple’s previous construction business could not match. The move many people have made from welfare rolls to decently paying jobs has been good for family life, said Ms. Hill, who, as a child welfare worker, has a unique perspective on the community’s social health.

As rosy as the picture is often painted, though, locals say some residents of the reserves resent the prosperity of their tobacco-business neighbours. Others are concerned about how the new money is affecting society.

Joe Delaronde, a spokesman for the Kahnawake band council, said his administration supports tobacco generally, but he laments that personal enrichment has become the overriding goal of many people in his community, contrary to what he called an Iroquoian tradition of putting the collective good first. If a hunter in the past would share his moose with everyone who was hungry, tobacco barons today are spreading around relatively little of their profits, he charged.

Doug George-Kanentiio, a journalist and native-rights advocate from Akwesasne, is more critical, comparing the current defence of contraband tobacco by some aboriginal leaders to arguments made by Pablo Escobar and other Colombian drug lords in the 1980s to defend their trade.

“It does provide an income, it does employ people, but at its heart it is not something that is good for the Iroquois people: … to base your entire economic wellbeing on, first, a single product and, second, a product that kills.”

What is more, workers at First Nations tobacco factories enjoy none of the basic labour protections, leaving themselves open to summary dismissal, and injury or sickness in workplaces with minimal health and safety precautions, said Mr. George-Kanentiio.

At Kahnawake and Six Nations, band leaders are drafting regulations that they say could put some controls on the industry, setting standards, allowing for factory inspections and even levying some kind of fee on businesses.

“Many within the industry like that renegade, cowboy culture,” said Mr. Delaronde. “[But] without proper regulation, it’s going to be a very short-term industry… Without regulation it’s pretty hard to defend.”

Tobacco entrepreneurs, though, are less than receptive to the idea, which some perceive as a gambit by band councils — institutions created by federal legislation -to regain some of the influence won by tobacco.

“Nobody wants to become regulated by the council, because you’re being regulated by the white man’s government,” Ms. Hill said.

And they argue that the business is, in fact, giving back to the community.

GRE, the fully licenced company, has contributed more than $10 million to its charitable Dreamcatcher Foundation.

Original Tobacco Traders, Kahnawake’s biggest factory, recently set up a fund that will pay out $100,000 to the community’s unfortunate every month.